**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

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**Form 10-Q**

 

**ý****                                ****Quarterly reportpursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

 

**For the quarterly period ended July 31, 2003**

 

**OR**

 

**o****                                ****Transition report pursuantto Section 13 or 15(d) of the Securities Exchange Act of 1934**

 

**CommissionFile Number:  001-11807**

 

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**UNIFYCORPORATION**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**                                                     |   | **94-2710559**                            |
|------------------------------------------------------------------|--------|-------------------------------------------|
| (State or other jurisdiction  of  incorporation or organization) |   | (I.R.S. Employer  Identification  Number) |

 

**2101 ArenaBlvd, Suite 100**

**Sacramento,California 95834**

(Addressof principal executive offices)

 

**Telephone:(916) 928-6400**

(Registrant’stelephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

YES   ý                              NO  o

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date.

 

21,487,048 shares of CommonStock, $0.001 par value, as of August 31, 2003

 

 

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**UNIFY CORPORATION**

**FORM 10-Q**

 

INDEX

 
| PART I.        | FINANCIAL INFORMATION                                                                                        |
|----------------|--------------------------------------------------------------------------------------------------------------|
|           |                                                                                                         |
| Item 1.        | Financial Statements                                                                                         |
|           |                                                                                                         |
|           | Unaudited Condensed Consolidated Balance  Sheets as of July 31, 2003 and April 30, 2003                      |
|           |                                                                                                         |
|           | Unaudited Condensed Consolidated Statements  of Operations for the three months ended July 31, 2003 and 2002 |
|           |                                                                                                         |
|           | Unaudited Condensed Consolidated Statements  of Cash Flows for the three months ended July 31, 2003 and 2002 |
|           |                                                                                                         |
|           | Notes to Unaudited Condensed Consolidated  Financial Statements                                              |
|           |                                                                                                         |
| Item 2.        | Management’s Discussion and Analysis of Financial Condition and  Results of Operations                  |
|           |                                                                                                         |
| Item 3.        | Disclosures about Market Rate Risk                                                                           |
|           |                                                                                                         |
| Item 4.        | Controls and Procedures                                                                                      |
|           |                                                                                                         |
| PART  II.      | OTHER  INFORMATION                                                                                           |
|           |                                                                                                         |
| Item 1.        | Legal Proceedings                                                                                            |
|           |                                                                                                         |
| Item 6.        | Exhibits and Reports on Form 8-K                                                                             |
|           |                                                                                                         |
| SIGNATURE      |
|           |
| CERTIFICATIONS |

 

2

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**PARTI.****                            FINANCIALINFORMATION**

 

**Item 1.****                                  FinancialStatements**

 

**UNIFYCORPORATION**

**UNAUDITED CONDENSED CONSOLIDATED BALANCESHEETS**

*(in thousands)*

 
|                                            |   | **July 31,  2003** |   | **April 30,  2003** |   |
|-------------------------------------------------|--------|--------------------|--------|---------------------|--------|
|                                            |   |               |   |                |   |
| **Assets**                                      |   |               |   |                |   |
| Current assets:                                 |   |               |   |                |   |
| Cash and cash equivalents                       |   | $                  | 2,479  |                | $      | 3,030 |   |
| Accounts receivable, net                        |   | 2,206              |   | 2,504               |   |
| Prepaid expense & other current assets      |   | 248                |   | 290                 |   |
| Total current assets                            |   | 4,933              |   | 5,824               |   |
|                                            |   |               |   |                |   |
| Property and equipment, net                     |   | 320                |   | 345                 |   |
| Other investments                               |   | 217                |   | 392                 |   |
| Other assets                                    |   | 118                |   | 114                 |   |
| Total assets                                    |   | $                  | 5,588  |                | $      | 6,675 |   |
|                                            |   |               |   |                |   |
| **Liabilities and Stockholders’ Equity**   |   |               |   |                |   |
| Current liabilities:                            |   |               |   |                |   |
| Account payable                                 |   | $                  | 351    |                | $      | 556 |   |
| Current portion of long term debt               |   | 140                |   | 200                 |   |
| Other accrued liabilities                       |   | 615                |   | 822                 |   |
| Accrued compensation and related expenses       |   | 566                |   | 652                 |   |
| Deferred revenue                                |   | 2,443              |   | 2,936               |   |
| Total current liabilities                       |   | 4,115              |   | 5,166               |   |
|                                            |   |               |   |                |   |
| Commitments and contingencies                   |   |               |   |                |   |
|                                            |   |               |   |                |   |
| Stockholders’ equity:                      |   |               |   |                |   |
| Common stock                                    |   | 21                 |   | 21                  |   |
| Paid in capital                                 |   | 59,414             |   | 59,339              |   |
| Note receivable from stockholder                |   | (60                | )      | (60                 | )      |
| Accumulated other comprehensive loss            |   | (10                | )      | (43                 | )      |
| Accumulated deficit                             |   | (57,892            | )      | (57,748             | )      |
| Total stockholders’ equity                 |   | 1,473              |   | 1,509               |   |
| Total liabilities and stockholders’ equity |   | $                  | 5,588  |                | $      | 6,675 |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

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**UNIFY CORPORATION**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS**

*(in thousands, except per share data)*

 
|                                          |   | **Three  Months Ended  July 31,** |   |
|-----------------------------------------------|--------|-----------------------------------|--------|
|                                          |   | **2003**                          |   | **2002** |   |
|                                          |   |                              |   |   |   |
| Revenues:                                     |   |                              |   |   |   |
| Software Licenses                             |   | $                                 | 1,836  |   | $ | 1,105 |   |
| Services                                      |   | 1,465                             |   | 1,533 |   |
| Total revenues                                |   | 3,301                             |   | 2,638 |   |
|                                          |   |                              |   |   |   |
| Cost of Revenues:                             |   |                              |   |   |   |
| Software licenses                             |   | 86                                |   | 68 |   |
| Services                                      |   | 320                               |   | 234 |   |
| Total cost of revenues                        |   | 406                               |   | 302 |   |
|                                          |   |                              |   |   |   |
| Gross margin                                  |   | 2,895                             |   | 2,336 |   |
|                                          |   |                              |   |   |   |
| Operating Expenses:                           |   |                              |   |   |   |
| Product development                           |   | 1,007                             |   | 1,126 |   |
| Selling, general and administrative           |   | 1,804                             |   | 1,571 |   |
| Write-down of other investments               |   | 175                               |   | 20 |   |
| Special charges (recovery)                    |   | 49                                |   | (106 | ) |
| Total operating expenses                      |   | 3,035                             |   | 2,611 |   |
|                                          |   |                              |   |   |   |
| Loss from operations                          |   | (140                              | )      | (275 | ) |
| Other expense, net                            |   | (2                                | )      | (10 | ) |
| Loss before income taxes                      |   | (142                              | )      | (285 | ) |
| Provision for income taxes                    |   | 2                                 |   | — |   |
| Net loss                                      |   | $                                 | (144   | ) | $ | (285 | ) |
|                                          |   |                              |   |   |   |
| Net loss per share:                           |   |                              |   |   |   |
| Basic                                         |   | $                                 | (0.01  | ) | $ | (0.01 | ) |
| Dilutive                                      |   | $                                 | (0.01  | ) | $ | (0.01 | ) |
| Shares used in computing net loss per  share: |   |                              |   |   |   |
| Basic                                         |   | 21,344                            |   | 20,639 |   |
| Dilutive                                      |   | 21,344                            |   | 20,639 |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

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**UNIFY CORPORATION**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS**

*(In thousands)*

 
|                                                                  |   | **Three  Months Ended July 31,** |   |
|-----------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                  |   | **2003**                         |   | **2002** |   |
| Cash flows from operating activities:                                 |   |                             |   |   |   |
| Net loss                                                              |   | $                                | (144   | ) | $ | (285 | ) |
| Reconciliation of net loss to net cash used in  operating activities: |   |                             |   |   |   |
| Depreciation                                                          |   | 45                               |   | 66 |   |
| Write-down of other investments                                       |   | 175                              |   | 20 |   |
| Stock based compensation                                              |   | 40                               |   | 123 |   |
| Changes in operating assets and liabilities:                          |   |                             |   |   |   |
| Accounts receivable                                                   |   | 335                              |   | 731 |   |
| Prepaid expenses and other current assets                             |   | 51                               |   | 139 |   |
| Accounts payable                                                      |   | (207                             | )      | 2 |   |
| Other accrued liabilities                                             |   | (201                             | )      | (277 | ) |
| Accrued compensation and related expenses                             |   | (95                              | )      | (100 | ) |
| Deferred revenue                                                      |   | (524                             | )      | (422 | ) |
| Net cash used in operating activities                                 |   | (525                             | )      | (126 | ) |
|                                                                  |   |                             |   |   |   |
| Cash flows from investing activities:                                 |   |                             |   |   |   |
| Purchases of property and equipment                                   |   | (20                              | )      | (46 | ) |
| Other assets                                                          |   | —                           |   | 1 |   |
| Net cash used in investing activities                                 |   | (20                              | )      | (45 | ) |
|                                                                  |   |                             |   |   |   |
| Cash flows from financing activities:                                 |   |                             |   |   |   |
| Proceeds from issuance of common stock, net                           |   | 34                               |   | 68 |   |
| Payment on long term debt                                             |   | (60                              | )      | (60 | ) |
| Repayment of payable to minority interest  stockholders               |   | —                           |   | (299 | ) |
| Net cash used in financing activities                                 |   | (26                              | )      | (291 | ) |
|                                                                  |   |                             |   |   |   |
| Effect of exchange rate changes on cash                               |   | 20                               |   | 141 |   |
| Net decrease in cash and cash equivalents                             |   | (551                             | )      | (198 | ) |
| Cash and cash equivalents, beginning of period                        |   | 3,030                            |   | 2,993 |   |
| Cash and cash equivalents, end of period                              |   | $                                | 2,479  |   | $ | 2,795 |   |
|                                                                  |   |                             |   |   |   |
| Supplemental cash flow information:                                   |   |                             |   |   |   |
| Cash paid (received) during the period for:                           |   |                             |   |   |   |
| Interest                                                              |   | $                                | (4     | ) | $ | — |   |
| Income taxes                                                          |   | $                                | 8      |   | $ | 2 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

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**UNIFY CORPORATION**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

**1.****              Basisof Presentation**

###### * *

The condensed consolidated financialstatements have been prepared by Unify Corporation (the “Company”) pursuant tothe rules and regulations of the Securities and Exchange Commission (“SEC”).While the interim financial information contained in this filing is unaudited,such financial statements, in the opinion of management, reflect alladjustments (consisting only of normal recurring adjustments) which the Companyconsiders necessary for a fair presentation. The results for interim periodsare not necessarily indicative of the results to be expected for the entirefiscal year. These financial statements should be read in conjunction with theConsolidated Financial Statements and Notes thereto, together with Management’sDiscussion and Analysis of Financial Condition and Results of Operations, whichare included in the Company’s Annual Report on Form 10-K for the fiscal yearended April 30, 2003 as filed with the SEC.

 

*Recently Issued Accounting Standards*

 

In November 2002, the EITF reached a consensus on Issue 00-21, “Multiple-DeliverableRevenue Arrangements” (“EITF 00-21”). EITF 00-21 addresses how to account forarrangements that may involve the delivery or performance of multiple products,services, and/or rights to use assets. The consensus mandates how to identify whethergoods or services or both that are to be delivered separately in a bundledsales arrangement should be accounted for separately because they are “separateunits of accounting.” The guidance can affect the timing of revenue recognitionfor such arrangements, even though it does not change rules governing thetiming or pattern of revenue recognition of individual items accounted forseparately. The final consensus will be applicable to agreements entered intoin fiscal periods beginning after June 15, 2003 with early adoption permitted.Additionally, companies will be permitted to apply the consensus guidance toall existing arrangements as the cumulative effect of a change in accountingprinciple in accordance with APB Opinion No. 20, Accounting Changes. TheCompany adopted the provisions of EITF 00-21 for fiscal 2004, which did notresult in a material impact to our financial position, cash flows or results ofoperations.

 

InDecember 2002, the FASB issued Statement of Financial Accounting Standards No.148, “Accounting for Stock-Based Compensation-Transition and Disclosure”(“Statement 148”). Statement 148 amends Statement of Financial AccountingStandards No. 123, “Accounting for Stock-Based Compensation,” (“Statement 123”)and provides alternative methods of transition for a voluntary change to thefair value based method of accounting for stock-based employee compensation.Statement 148 also amends the disclosure requirements of FAS 123 to requiremore prominent and frequent disclosures in financial statements about theeffects of stock-based compensation. The transition guidance and annualdisclosure provisions of Statement 148 are effective for financial statementsissued for fiscal years ending after December 15, 2002. The interim disclosureprovisions are effective for financial reports containing financial statementsfor interim periods beginning after December 15, 2002. The Company adopted thedisclosure provisions of Statement 148 for fiscal 2004, which did not result ina material impact to our financial position, cash flows or results ofoperations.

 

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In January 2003, the FASB issuedInterpretation Number 46, “Consolidation of Variable Interest Entities - aninterpretation of ARB No. 51” (FIN46). FIN 46 establishes accounting guidance for consolidation of a variableinterest entity (“VIE”), formerly referred to as special purpose entities. FIN46 applies to any business enterprise, both public and private, that has acontrolling interest, contractual relationship or other business relationshipwith a VIE. FIN 46 provides guidance for determining when an entity, thePrimary Beneficiary, should consolidate another entity, a VIE.  This statement is effective immediately forvariable interest entities created after January 31, 2003 and by the firstinterim or annual reporting period commencing after June 15, 2003, for variableinterest entities created prior to February 1, 2003.  The Company is still evaluating the impact of FIN 46, but doesnot expect its adoption will have a material impact on our financial position,cash flows or results of operations.

 

**2.****             ****Stock CompensationInformation**

 

Unifyaccounts for its stock based compensation plans under the recognition andmeasurement principles of APB Opinion No. 25, “Accounting for Stock Issued toEmployees,” and related interpretations. Option valuation models were developed for use in estimating the fairvalue of traded options that have no vesting restrictions and are fullytransferable. In addition, option valuation models require the input of highlysubjective assumptions, including the expected life of the option. Because theCompany’s employee stock options have characteristics significantly differentfrom those of traded options and because changes in the subjective inputassumptions can materially affect the fair value estimates, in management’sopinion, the existing models do not necessarily provide a reliable singlemeasure of the fair value of its employee stock options.

 

TheCompany’s calculations are made using the Black-Scholes option pricing model,with the following weighted average assumptions for the three months endingJuly 31, 2003 and 2002, respectively: expected option life, 12 months followingvesting; stock volatility of 109% and 118%; risk-free interest rates of1.8%  and 2.1%; and no dividends duringthe expected term. The Company’s calculations are based on a multiple optionvaluation approach and forfeitures are recognized as they occur.

 

Thefollowing table illustrates the effect on net loss and net loss per share ifUnify had applied the fair value recognition provisions of Financial AccountingStandards Board Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employeecompensation (in thousands, except per share amounts):

 
|                                                                                                |   | **Three  Months Ended July 31,** |   |
|-----------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                                |   | **2003**                         |   | **2002** |   |
| Net loss as reported                                                                                |   | $                                | (144   | ) | $ | (285 | ) |
| Add: stock-based employee compensation  included in reported net loss                               |   | 40                               |   | 123 |   |
| Less: stock-based employee compensation  expense, determined under fair value method for all awards |   | (94                              | )      | (254 | ) |
| Proforma net  loss                                                                                  |   | $                                | (198   | ) | $ | (416 | ) |
|                                                                                                |   |                             |   |   |   |
| Net loss per share:                                                                                 |   |                             |   |   |   |
| Basic and diluted net loss per share, as  reported                                                  |   | $                                | (0.01  | ) | $ | (0.01 | ) |
| Basic and diluted net loss per share, pro  forma                                                    |   | $                                | (0.01  | ) | $ | (0.02 | ) |

 

7

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**3.****              OtherInvestments**

 

Other investments represent common stock in three closely heldtechnology companies. The Company’s ownership interest in each company is lessthan 15%.  Other investments consistedof the following (in thousands):

 
|                                |   | **July 31,  2003** |   | **April 30,  2003** |   |
|-------------------------------------|--------|--------------------|--------|---------------------|--------|
|                                |   |               |   |                |   |
| Arango Software International, Inc. |   | $                  | 175    |                | $      | 350 |   |
| Unify Japan                         |   | 39                 |   | 39                  |   |
| Other                               |   | 3                  |   | 3                   |   |
|                                |   |               |   |                |   |
|                                |   | $                  | 217    |                | $      | 392 |   |

 

The Company holds a minorityinterest in Arango Software International, Inc. (or “Arango”), a privately-heldcorporation headquartered in Panama. We assess the valuation of Arango whenevercircumstances indicate that there is a decline in carrying value below costthat is other-than temporary. Several factors can trigger an impairment reviewsuch as significant underperformance relative to expected historical orprojected future operating results and significant negative industry oreconomic trends. In assessing potential impairment for such investments, weconsider these factors as well as the forecasted financial performance. Whensuch decline in value is other-than-temporary, we recognize an impairment lossin the current period operating results to the extent of the decline.  During the first quarter of fiscal 2004, the Company reduced the carryingvalue of its investment in Arango by $175,000. Future adverse changes in market conditions or poor operating results ofArango could result in losses or an inability to recover the carrying value ofthe investment that is not currently reflected in the investment’s carryingvalue, thereby possibly requiring an impairment charge in the future.

 

**4.****              CreditFacility**

 

OnJune 6, 2003, the Company executed a $1.5 million revolving line of creditfacility with Silicon Valley Bank. The line is secured by qualifying accountsreceivable, foreign and domestic, and has a one-year term. The Company incursinterest expense on funds used at the prevailing prime rate, not to be lessthan 4.25% per annum, plus two percent. There was no balance on line as of July31, 2003.

 

TheCompany issued warrants to Silicon Valley Bank to purchase 115,385 shares ofCompany stock at a per share price of $0.39 exercisable through June 6,2010.  The Company recorded the fairvalue of the warrants.  The Companydetermined the fair value of the warrants using the Black-Scholes optionpricing model, the fair value of the Company’s stock at the date of issuance,volatility factor of 70%, risk free-interest rate of 2.1%, expected life of 10years and no dividend yield.  Thisamount totaling $34,600 is being amortized over the term of the debt throughinterest expense.

 

8

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**5.****              ComprehensiveIncome (Loss)**

 

The Company’s total comprehensive income (loss) for the periods shownwas as follows:

 
|                              |   | **Three  Months Ended July 31,** |   |
|-----------------------------------|--------|----------------------------------|--------|
|                              |   | **2003**                         |   | **2002** |   |
|                              |   |                             |   |   |   |
| Net income (loss)                 |   | $                                | (144   | ) | $ | (285 | ) |
| Foreign currency translation      |   | 33                               |   | 93 |   |
| Total comprehensive income (loss) |   | $                                | (111   | ) | $ | (192 | ) |

 

**6.****              SpecialCharges**

 

In July 2000, the Company announced that certain matters had come tothe attention of the Company’s Board of Directors that indicated that theCompany had engaged in improper accounting practices. Accordingly, the Board ofDirectors authorized its Audit Committee to conduct an investigation of theCompany’s accounting and financial reporting practices and to recommendremedial action, if any.  As a result ofthe on-going United States Attorney’s office litigation against the Company’sformer officers, the Company continues to incur additional legal costs.  During the three month periods ended July31, 2003 the Company incurred additional costs of $49,000, while for the sameperiod in 2002 the Company recorded recoveries of $106,000.

 

9

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**7.****              Earnings(Loss) Per Share**

 

SFAS No. 128, *Earnings Per Share,* requires a dualpresentation of basic and diluted income per share (“EPS”). Basic EPS excludesdilution and is computed by dividing net income (loss) attributable to commonstockholders by the weighted average of common shares outstanding for theperiod. Diluted EPS reflects the potential dilution that could occur ifsecurities or other contracts to issue common stock (e.g. convertible preferredstock, warrants, and common stock options) were exercised or converted intocommon stock.  Potential common sharesin the diluted EPS computation are excluded for the three month period endedJuly 31, 2003 as their effect would be antidilutive.  The following is a reconciliation of the numerators anddenominators of the basic and diluted income per share computations for theperiods indicated (in thousands, except per share amounts):

 
|                                                                                       |   | **Three  Months Ended July 31,** |   |
|--------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                       |   | **2003**                         |   | **2002** |   |
| **Net Income (Loss) (Numerator):**                                                         |   |                             |   |   |   |
| Net income (loss)                                                                          |   | $                                | (144   | ) | $ | (285 | ) |
|                                                                                       |   |                             |   |   |   |
| **Shares (Denominator):**                                                                  |   |                             |   |   |   |
| Weighted average shares of common stock  outstanding, basic                                |   | 21,344                           |   | 20,639 |   |
| Weighted average common equivalent shares****outstanding                                   |   | —                           |   | — |   |
| Weighted average shares of common stock  outstanding, diluted                              |   | 21,344                           |   | 20,639 |   |
|                                                                                       |   |                             |   |   |   |
| **Per Share Amount:**                                                                      |   |                             |   |   |   |
| Net income (loss) per share, basic                                                         |   | $                                | (0.01  | ) | $ | (0.01 | ) |
| Reduction in net income (loss) per share  due to Weighted average common equivalent shares |   | (0.00                            | )      | (0.00 | ) |
| Net income (loss) per share, diluted                                                       |   | $                                | (0.01  | ) | $ | (0.01 | ) |

 

10

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**8.****              MaintenanceContracts**

 

The Company offers maintenance contracts to its customers at the timethey enter into a product license agreement and renews those contracts, at thecustomers’ option, annually thereafter. These maintenance contracts are pricedas a percentage of the value of the related license agreement. The specificterms and conditions of these initial maintenance contracts and subsequentrenewals vary depending upon the product licensed and the country in which theCompany does business. Generally, maintenance contracts provide the customerwith unspecified product maintenance updates and customer support services. Revenue from maintenance contracts is initiallydeferred and then recognized ratably over the term of the agreements.

 

Changes in the Company’s deferred maintenance revenue during theperiods are as follows:

 
|                                |   | **Three  Months Ended July 31,** |   |
|-------------------------------------|--------|----------------------------------|--------|
|                                |   | **2003**                         |   | **2002** |   |
|                                |   |                             |   |   |   |
| Balances, beginning of period       |   | $                                | 2,846  |   | $ | 2,932 |   |
|                                |   |                             |   |   |   |
| Amount recognized during the period |   | (1,390                           | )      | (1,462 | ) |
|                                |   |                             |   |   |   |
| Amount of new maintenance contracts |   | 839                              |   | 1,304 |   |
|                                |   |                             |   |   |   |
| Balances, end of period             |   | $                                | 2,295  |   | $ | 2,774 |   |

 

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### **UNIFY CORPORATION**

 

**Item2.****                                   Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

*The discussion in this Quarterly Report on Form 10-Q containsforward-looking statements that have been made pursuant to the provisions ofthe Private Securities Litigation Reform Act of 1995. Such forward-lookingstatements are based on current expectations, estimates and projections aboutthe software industry and certain assumptions made by the Company’s management.Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”,“seeks”, “estimates”, variations of such words and similar expressions areintended to identify such forward-looking statements. These statements are notguarantees of future performance and are subject to certain risks,uncertainties and assumptions that are difficult to predict; therefore, actualresults may differ materially from those expressed or forecasted in any suchforward-looking statements. Such risks and uncertainties include, but are notlimited to, those set forth herein under “Volatility of Stock Price and GeneralRisk Factors Affecting Quarterly Results” and in the Company’s Annual Report onForm 10-K under “Business – Risk Factors.” Unless required by law, the Companyundertakes no obligation to update publicly any forward-looking statements,whether as a result of new information, future events or otherwise. However,readers should carefully review the risk factors set forth in other reports ordocuments the Company files from time to time with the SEC, particularly theCompany’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and anyCurrent Reports on Form 8-K.*

 

The following discussion should be read inconjunction with the unaudited Condensed Consolidated Financial Statements andNotes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q and withthe audited Consolidated Financial Statements and Notes thereto, together withManagement’s Discussion and Analysis of Financial Condition and Results ofOperations, which are included in the Company’s Annual Report on Form 10-K forthe fiscal year ended April 30, 2003 as filed with the SEC.

 

**Overview**

 

Unifyis a global provider of software product solutions that help companies deliverrobust and reliable Web and business applications in less time, at a lower costand with significantly reduced maintenance. We have a customer base of over 2,000 organizations worldwide that useour solutions to deliver applications that enhance revenue opportunities,improve operational effectiveness, and enrich customer relationships.  Our customers are leaders in theirrespective industries including healthcare, financial services, government andmanufacturing among others,

 

TheCompany’s flagship product, Unify NXJ, was launched in October 2002 andcontinues to gain traction in the Web application market. Unify NXJ is aproduct solution for delivering business applications for the Web in less time,at a lower cost and with significantly reduced maintenance.  Unify NXJ simplifies and speeds the buildingand management of Web applications by providing 70 percent of the applicationfunctions and logic necessary for a robust Web application.  This allows IT organizations to simply addbusiness rules, customize the user interface to the corporate standards andquickly deliver a data-rich Web application.

 

Forthe past 23 years, Unify has provided application development and databasemanagement product solutions to organizations worldwide.  Unify’s rapid application developmentproduct line, ACCELL, graphical client/server application development product,VISION, and database management product family, DataServer, enable ITorganizations to rapid develop and deliver business applications critical tothe enterprise.  We help companies solvebusiness and IT

 

12

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challengesby providing a broad range of application development product solutions thatare easy to use and cost-effective.

 

**Critical Accounting Policies**

 

Thefollowing discussion and analysis of the Company’s financial condition andresults of operations are based upon our consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States. The preparation of these financial statementsrequires us to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and related disclosure ofcontingent liabilities. We base our estimates on historical experience and onvarious other assumptions that are believed to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates underdifferent assumptions or conditions. The areas that require significantjudgment are as follows.

 

*Revenue recognition*.  The Company generates revenuefrom software license sales and related services, including maintenance andsupport, training services and consulting services. The Company licenses itsproducts to end user customers, independent software vendors and value addedresellers. The Company recognizes revenue for software license sales inaccordance with Statement of Position 97-2, “Software Revenue Recognition” aseffected by Statement of Position 98-4 “Deferral of the Effective Date of aProvision of SOP 97-2” and Staff Accounting Bulletin No. 101, “RevenueRecognition in Financial Statements.” The nature of each licensing arrangementdetermines how revenues and related costs are recognized.

 

TheCompany’s customer contracts include multi-element arrangements that include adelivered element, software license, and an undelivered element, maintenanceand support. The value allocated to the undelivered element is unbundled fromthe delivered element based on vendor-specific objective evidence (VSOE) of therelative fair value of the maintenance and support, regardless of any separateprices stated within the contract. VSOE of fair value is defined as (i) theprice charged when the same element is sold separately, or (ii) if the elementhas not yet been sold separately, the price for the element established bymanagement having the relevant authority when it is probable that the price willnot change before the introduction of the element into the marketplace. TheCompany then allocates the remaining balance to the delivered element, softwarelicense, regardless of any separate prices stated within the contract. TheCompany’s customer contracts do not require the Company to perform significantproduction, modification or customization of the software.

 

Revenueis recognized when a noncancelable license agreement has been signed or otherpersuasive evidence of an arrangement exists, the software product or servicehas been shipped or electronically delivered, the license fees are fixed anddeterminable and collectibility is probable.

 

Anassessment of the ability of the Company’s customers to pay is anotherconsideration that affects revenue recognition. In some cases, the Companysells to undercapitalized customers. In those circumstances, revenuerecognition is deferred until cash is received, the customer has established ahistory of making timely payments or the customer’s financial condition hasimproved. Furthermore, once revenue has been recognized, the Company evaluatesthe related accounts receivable balance at each period end for amounts that webelieve may no longer be collectible. This evaluation is largely done based ona review of the financial condition via credit agencies and historicalexperience with the customer. Any deterioration in credit worthiness of acustomer may impact the Company’s evaluation of accounts receivable in anygiven period.

 

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Revenuefrom support and maintenance activities, which consist of fees for ongoingsupport and unspecified product updates, are recognized ratably over the termof the maintenance contract, typically one year, and the associated costs areexpensed as incurred. Consulting service arrangements are performed on a “bestefforts” basis and are generally billed under time-and-materials arrangements.Revenues and expenses relating to providing consulting services are recognizedas the services are performed.

 

*Valuation of long-lived assets.*  Ourlong-lived assets are comprised of long-term investments. At July 31, 2003, wehad $217,000 in long-term investments, which are accounted for under the costmethod. We assess the valuation of long-lived assets whenever circumstancesindicate that there is a decline in carrying value below cost that isother-than temporary.  Several factorscan trigger an impairment review such as significant underperformance relativeto expected historical or projected future operating results and significantnegative industry or economic trends. In assessing potential impairment forsuch investments, we consider these factors as well as the forecasted financialperformance. When such decline in value is other-than-temporary, we recognizean impairment loss in the current period operating results to the extent of thedecline. We recognized $175,000 in impairment losses related to long-terminvestments in the quarter ended July 31, 2003. Future adverse changes in marketconditions or poor operating results could result in losses or an inability torecover the carrying value of the long-term investments that is not currentlyreflected in the investments carrying value, thereby, possibly requiringadditional impairment charges in the future.

 

*Deferred tax asset valuation allowance.*  As ofJuly 31, 2003, we have approximately $18.6 million of deferred tax assetsrelated principally to net operating loss carry forwards, reserves and otheraccruals, deferred revenue, and foreign tax credits. A valuation allowance hasbeen recorded to offset these deferred tax assets. The ability of the Companyto ultimately realize its deferred tax assets will be contingent upon theCompany achieving taxable income. There can be no assurance that this willoccur in amounts sufficient to utilize the deferred tax assets. Should wedetermine that we would be able to realize the deferred tax assets in thefuture in excess of the recorded amount, an adjustment to the deferred taxasset would increase income in the period such determination was made.

 

**Resultsof Operations**

 

TheCompany incurred a net loss for the first quarter of fiscal 2004 of $144,000,or a one cent loss per basic share, compared to a net loss of $285,000, or aone cent loss per basic share, in the first quarter of the prior year.  The net loss for the first quarter of fiscal2004 includes severance expenses of $200,000 associated with a reduction inforce that the Company undertook during the quarter, a $175,000 write-down ofthe Company’s investments in other assets, and $49,000 in special charges,primarily legal fees, relating to the Company’s participation in the ongoingprosecution of two of the Company’s former officers by the United StatesAttorney’s office. The net loss for the first quarter of the fiscal 2003included a $20,000 write-down of the Company’s investments in other assets, and$106,000 in recoveries of special charges. See Part II, Item 1.

 

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Thefollowing table sets forth, for the periods indicated, certain financial dataas a percentage of total revenue:

 
|                                 |   | **Three  Months ended July 31,** |   |
|--------------------------------------|--------|----------------------------------|--------|
|                                 |   | **2003**                         |   | **2002** |   |
| Revenues:                            |   |                             |   |   |   |
| Software licenses                    |   | 55.6                             | %      | 41.9 | % |
| Services                             |   | 44.4                             |   | 58.1 |   |
| Total revenues                       |   | 100.0                            |   | 100.0 |   |
|                                 |   |                             |   |   |   |
| Cost of revenues:                    |   |                             |   |   |   |
| Software licenses                    |   | 2.6                              |   | 2.6 |   |
| Services                             |   | 9.7                              |   | 8.9 |   |
| Total cost of revenues               |   | 12.3                             |   | 11.5 |   |
|                                 |   |                             |   |   |   |
| Gross profit                         |   | 87.7                             |   | 88.5 |   |
|                                 |   |                             |   |   |   |
| Operating expenses:                  |   |                             |   |   |   |
| Product development                  |   | 30.5                             |   | 42.7 |   |
| Selling, general and administrative  |   | 54.6                             |   | 59.4 |   |
| Write-down of other investment       |   | 5.3                              |   | .8 |   |
| Recovery of special charges          |   | 1.5                              |   | (4.0 | ) |
| Total operating expenses             |   | 91.9                             |   | 98.9 |   |
| Income (loss) from operations        |   | (4.2                             | )      | (10.4 | ) |
| Other income, net                    |   | (0.1                             | )      | (0.4 | ) |
| Income (loss) before income taxes    |   | (4.3                             | )      | (10.8 | ) |
| Provision (benefit) for income taxes |   | (0.1                             | )      | 0.0 |   |
| Net income (loss)                    |   | (4.4                             | )%     | (10.8 | )% |

 

*Revenues*

 

Total revenues for the quarter ended July 31, 2003 increased $0.7million, or 25%, from the same quarter of the prior year to $3.3 million.  Revenues in North America decreased $0.2million, or 14%, to $1.2 million during the quarter ended July 31, 2003, fromthe same quarter of the prior year. International revenues increased as a percentageof total revenues from 45% to 62% during the first quarter of fiscal 2004compared to the same quarter of the prior fiscal year.  The increase in total revenues was primarilythe result of software licenses which increased $0.7 million, or 66%, to $1.8million in the first quarter of fiscal 2004.

 

Services revenues remained flat at $1.5 million compared to the samecomparative period a year ago, including maintenance revenues at $1.4 millionfor both the first quarter of fiscal 2004 and 2003.  The Company generally renews about 75% of its maintenanceagreements, which is typically augmented by new maintenance revenues from newproduct revenues.  Consulting andtraining revenues remained flat during the first quarter of fiscal 2004 at $0.1million as compared to the same period of the prior year.

 

*Cost of Revenues*

 

The Company’s cost of revenues includes cost of software licenses andcost of services.  Cost of softwarelicenses consist primarily of product documentation, packaging and productioncosts, and royalties paid for licensed technology. Costs of services consistprimarily of employee, facilities and travel costs incurred in providingcustomer support under software maintenance contracts, and consulting andtraining services.  Total cost of revenuesincreased to $0.4 million

 

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in the first quarter of fiscal 2004 from $0.3 million for the firstquarter of fiscal 2003. During fiscal year 2004, the Company increased itsinvestment in customer support as it introduced its new product, Unify NXJ inOctober, 2002.

 

Cost of software licenses increased by$18,000 in the first quarter of fiscal 2004 as compared to the same period offiscal 2003.  The increase in the costof software license revenues reflects the increase in software license revenuesthat occurred in the period over the same period for last year.  The relationship between revenues andexpenses will vary from quarter to quarter and is the result of differencesbetween revenue recognition and the recording of expenses, which for the mostpart are fixed period costs.

 

Total cost of services increased to $0.3million in the first quarter of fiscal 2004 from $0.2 million during the sameperiod in fiscal 2003.  The cost ofservice has a high component of fixed costs, and therefore the relative dollaramount does not fluctuate as readily with the changes in revenues. The increasein fiscal 2004 reflects the Company’s increased investment in customer supportas it introduced its new product, Unify NXJ in October, 2002.

 

*Product Development*

 

Product development expenses consist primarily of employee andfacilities costs incurred in the development and testing of new products and inthe porting of new and existing products to additional hardware platforms andoperating systems.  For the first threemonth period of fiscal 2004, product development expenses decreased to $1.0million compared to $1.1 million during the same three month period of fiscal2003.  Product development costs as apercentage of total revenues during the first quarter of fiscal 2004 were 31%of total revenues as compared to 43% for the first quarter of fiscal 2003.During the first quarter of fiscal 2004, the Company reduced its productdevelopment costs as part of a restructuring, in order to afford increasedinvestments in sales and marketing, particularly for Unify NXJ.  The Company still believes that investmentsin product development are critical to maintaining technological leadership andtherefore intends to continue to devote significant resources to productdevelopment.

 

*Selling, General and Administrative*

 

Selling, general and administrative (“SG&A”) expenses for thequarter ended July 31, 2003 increased 15% to $1.8 million, or 55% of totalrevenues, as compared to $1.6 million, or 59% of total revenues, for the samequarter of the prior year.  The majorcomponents of SG&A for the first three months of fiscal 2004 were salesexpenses of $1.0 million, marketing expenses of $0.2 million, general andadministrative of $0.7 million and bad debt recovery of $0.1 million.  Sales expenses increased $0.1 million overthe same period from the previous year as a result of increased investmentsdesigned to increase the sales of Unify NXJ, including hiring a new VP of Salesand Marketing during the first quarter of fiscal 2004.  Marketing expenses increased by $0.1 millionduring the same two comparative periods as the result of increased trade showactivity designed to increase the market awareness of Unify NXJ. General andadministrative expenses were flat at during the first quarter of fiscal 2004 ascompared to the same period in fiscal 2003. The Company’s net recovery of priorbad debt expense was flat. The Company expects that total SG&A expenses mayfluctuate from quarter to quarter primarily because of variability in marketingspending and sales commission expense.

 

*Write-down of OtherInvestments*

 

During the first quarter of fiscal 2004 and 2003, the Company recordednon-cash charges of $175,000 and $20,000, respectively to write-down thecarrying amount of its investment in Arango Software International to itsestimated realizable value at July 31, 2003 and to write-

 

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down the carrying amount of its investment in Evergreen Internet, Inc.to its estimated realizable value at July 31, 2002.

 

###### *Special Charges*

###### * *

In July 2000, the Company announced that certain matters had come tothe attention of the Company’s Board of Directors that indicated that theCompany had engaged in improper accounting practices during fiscal 2000. Accordingly,the Board of Directors authorized its Audit Committee to conduct aninvestigation of the Company’s accounting and financial reporting practices andto recommend remedial action, if any. As a result of this financial reportinginvestigation, the Company incurred special charges related to theinvestigation itself, legal expenses, additional auditing costs and otherlitigation related costs. During the first three months of fiscal 2004 and2003, the Company recorded special charges of $49,000 and recoveries of specialcharges, of $ $106,000, respectively. The special charges incurred during the first quarter of fiscal 2004were attributable to the ongoing costs of the United States Attorney office’sprosecution of two former officers of the Company (See Part II, Item 1). Therecoveries were due primarily to the settlement of the class action lawsuitfiled against the Company and reimbursements of legal expenses under theCompany’s Directors and Officers insurance policy.

###### * *

###### *Provision forIncome Taxes*

 

The Company recorded no federal or state income tax provisions for thequarter ended July 31, 2003 as the Company had a net operating loss.  For the first quarter ended July 31, 2003,the******Company recordedincome tax expenses related primarily to foreign income taxes withholding onsoftware license royalties paid to the Company by certain foreign licensees.

 

**Liquidityand Capital Resources**

 

At July 31, 2003, the Company had cash, cash equivalents and short-terminvestments of $2.5 million, compared to $3.0 million at April 30, 2003.  Working capital increased to $0.8 million atJuly 31, 2003 compared to $0.7 million at April 30, 2003. Under the Company’sline of credit arrangement with Silicon Valley Bank, which was put in placeduring the first quarter of fiscal 2004, the Company had no amounts outstandingto the Bank as of July 31, 2003. The line of credit has a borrowing limit of$1.5 million; as of July 31, 2003, based upon the amount of its eligible assetsat that time, the Company had available for borrowing up to $0.6 million.

 

The Company’s operations resulted in a decrease in cash of $0.6 millionduring the three months ended July 31, 2003, as compared to a decrease of $0.2million for the same period in the prior year. The decrease in cash provided by operating activities of $0.5 millionfor the first quarter of fiscal 2004 resulted from a net loss of $0.1 millionwhich included severance expenses of $0.2 million associated with a reductionin force that the Company undertook during the quarter and the increase in thewrite-down of other investments of $0.2 million. Operating cash was provided bydecreases in accounts receivable of $0.3 million, and increases in depreciationalong with decreases in prepaid expenses and other current assets of $0.1 million.Operating cash was used as a result of decreases in accounts payable and otheraccrued liabilities of $0.2 million each, a decrease in accrued compensationand related expenses of $0.1 million reflecting the pay-out of accruedvacation, in addition to the severance referred to above relating to thereduction in force the Company undertook during the quarter, and a decrease indeferred revenues of $0.5 million. Investing activities during the period usedcash of $20,000 from the purchase of property and equipment.  Cash used in financing activities during theperiod was $26,000.

 

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A summary of certain contractual obligations of the Company as of July31, 2003 is presented below:

 
|                                   |   | **Payments Due by Period** |      |
|----------------------------------------|--------|----------------------------|-----------|
| **Contractual  Obligations**           |   | **Total**                  |      | **1 year or  less** |   | **1-3 years** |   | **3 - 5  years** |   | **More than 5  years** |   |
| **Long-Term Debt**                     |   | $                          | 140,000   |   | $ | 140,000 |   | — |   | — |   | — |   |
| **Operating Leases**                   |   | $                          | 4,573,663 |   | $ | 1,027,295 |   | $ | 2,911,743 |   | $ | 634,195 |   | $ | 430 |   |
| **Total Contractual Cash Obligations** |   | $                          | 4,713,663 |   | $ | 1,167,295 |   | $ | 2,911,743 |   | $ | 634,195 |   | $ | 430 |   |

 

**Volatilityof Stock Price and General Risk Factors Affecting Quarterly Results**

 

The Company’s common stock price has been and is likely to continue tobe subject to significant volatility.  Avariety of factors could cause the price of the Company’s common stock tofluctuate, perhaps substantially, including: announcements of developmentsrelated to the Company’s business; fluctuations in the Company’s or itscompetitors’ operating results and order levels; general conditions in thecomputer industry or the worldwide economy; announcements of technologicalinnovations; new products or product enhancements by the Company or itscompetitors; changes in financial estimates by securities analysts;developments in patent, copyright or other intellectual property rights;developments in the Company’s relationships with its customers, distributorsand suppliers; legal proceedings brought against the Company or its officers;and significant changes in the Company’s senior management team.  In addition, in recent years the stockmarket in general, and the market for shares of equity securities of many hightechnology companies in particular, have experienced extreme price fluctuationswhich have often been unrelated to the operating performance of thosecompanies. Such fluctuations may adversely affect the market price of theCompany’s common stock.

 

The Company’s quarterly operating results have varied significantly inthe past, and the Company expects that its operating results are likely to varysignificantly from time to time in the future. Such variations result from,among other factors, the following: the size and timing of significant ordersand their fulfillment; demand for the Company’s products; ability to sell newproducts; the number, timing and significance of product enhancements and newproduct announcements by the Company and its competitors; ability of theCompany to attract and retain key employees; seasonality; changes in pricingpolicies by the Company or its competitors; realignments of the Company’sorganizational structure; changes in the level of the Company’s operatingexpenses; changes in the Company’s sales incentive plans; budgeting cycles ofthe Company’s customers; customer order deferrals in anticipation ofenhancements or new products offered by the Company or its competitors; productlife cycles; product defects and other product quality problems; currencyfluctuations; and general domestic and international economic and politicalconditions.

 

Due to the foregoing factors, quarterly revenues and operating resultsare difficult to forecast. Revenues are also difficult to forecast because themarket for web application development software is rapidly evolving, and the Company’ssales cycle, from initial evaluation to purchase

 

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and the provision of maintenance services, is lengthy and variessubstantially from customer to customer. Because the Company normally shipsproducts within a short time after it receives an order, it typically does nothave any material backlog. As a result, to achieve its quarterly revenueobjectives, the Company is dependent upon obtaining orders in any given quarterfor shipment in that quarter. Furthermore, because many customers place orderstoward the end of a fiscal quarter, the Company generally recognizes asubstantial portion of its revenues at the end of a quarter. As the Company’sexpense levels are based in significant part on the Company’s expectations asto future revenues and are therefore relatively fixed in the short term, ifrevenue levels fall below expectations, operating results are likely to bedisproportionately adversely affected. The Company also expects that its operating results will be affected byseasonal trends, and that it may experience relatively weaker demand in fiscalquarters ended July 31 and October 31 as a result of reduced business activityin Europe during the summer months.

 

**Item 3. Disclosuresabout Market Risk**

 

*Interest Rate Risk*.  The Company’s exposure to market rate risk for changes ininterest rates relates primarily to its cash equivalents, which are highlyliquid investments with original maturities of three months or less and are statedat cost. Cash equivalents are generally maintained in money market accountswhich have as their objective preservation of principal and which holdinvestments with maturity dates of less than 90 days. The Company does notbelieve its exposure to interest rate risk is material for these balances,which totaled $2.5 million at July 31, 2003. Additionally, the Company has nointerest rate risk on its long-term debt. Unify does not use derivativefinancial instruments and places its cash equivalents with high quality issuersand, by policy, limits the amount of credit exposure to any one issuer. Ifmarket interest rates were to change immediately and uniformly by ten percentfrom levels at July 31, 2003, the fair value of the Company’s cash equivalentswould change by an insignificant amount.

 

*Foreign Currency Exchange Rate Risk*.  As a global concern, the Company facesexposure to adverse movements in foreign currency exchange rates. Theseexposures may change over time as business practices evolve and could have amaterial adverse impact on the Company’s business, operating results andfinancial position. Historically, the Company’s primary exposures have relatedto local currency denominated sales and expenses in Europe, Japan andAustralia. Due to the substantial volatility of currency exchange rates, amongother factors, the Company cannot predict the effect of exchange ratefluctuations on its future operating results. Although Unify takes into accountchanges in exchange rates over time in its pricing strategy, it does so only onan annual basis, resulting in substantial pricing exposure as a result offoreign exchange volatility during the period between annual pricing reviews.The Company also has currency exchange rate exposures on intercompany accountsreceivable and payables owed to and by the Company as a result of localcurrency sales of software licenses and payments of intercompany royaltiesthereon, by the Company’s international subsidiaries in the United Kingdom andFrance. At July 31, 2003, the Company had $0.1 million each in such receivablesdenominated in British pounds and Euros, respectively. The Company encouragesprompt payment of these intercompany balances in order to minimize its exposureto currency fluctuations, but it engages in no hedging activities to reduce therisk of such fluctuations. A hypothetical ten percent change in foreigncurrency rates would have an insignificant impact on the Company’s business,operating results and financial position. The Company has not experiencedmaterial exchange losses on intercompany balances in the past; however, due tothe substantial volatility of currency exchange rates, among other factors, itcannot predict the effect of exchange rate fluctuations on its future business,operating results and financial position.

 

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**Item 4.Controls and Procedures**

 

*Disclosure Controls andProcedures.*  Within the 90 days prior to thedate of this report, the Company carried out an evaluation, under thesupervision and with the participation of its management, including itsPresident and Chief Executive Officer and its Chief Financial Officer, of theeffectiveness of the design and operation of its disclosure controls andprocedures pursuant to Rule 13a-15 under the Securities Exchange Act of1934. Based upon that evaluation, the President and Chief Executive Officer,and Chief Financial Officer have concluded that the Company’s disclosurecontrols and procedures are effective in timely alerting them to materialinformation relating to the Company that is required to be included in theCompany’s periodic SEC filings.

 

*Internal Controls andProcedures. *There were nosignificant changes in internal controls or in other factors that couldsignificantly affect these controls subsequent to the date of the evaluation ofthese controls, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

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**PARTII.****                        OTHERINFORMATION**

 

**Item 1. Legal Proceedings**

 

**Litigation**

 

SEC and United States Attorney’s OfficeActions: In May 2002, the SEC brought an action against the Company and two ofits former officers.  The SEC chargedthe Company with books and records violations only and did not seekdisgorgement or civil penalties against the Company.  In May 2002, the Company consented to the entry of a permanentinjunction without admitting or denying the allegations in the SEC’s complaint.  The Company understands that the SEC’saction against the former officers is continuing.

 

In May 2002, the United States Attorney forthe Northern District of California announced the indictment of a formerofficer of the Company and the guilty plea of another former officer forviolations of federal securities laws. The trial in that action is presently set for September 15, 2003. TheCompany has been advised by the United States Attorney’s Office that it willnot seek to indict the Company for violations of federal securities laws.  The Company will continue to cooperate withthe SEC and United States Attorney’s Office, as necessary, in connection withany actions pending against any former executive officers of the Company andcannot predict the outcome of either matter.

 

TheCompany is subject to legal proceedings and claims that arise in the normalcourse of business.  The Company cannotassure that it would prevail in such matters nor can it assure that any remedycould be reached on mutually agreeable terms, if at all.  Due to the inherent uncertainties oflitigation, were there any such matters, the Company would not be able toaccurately predict their ultimate outcome. As of July 31, 2003, there are nocurrent proceedings or litigation involving the Company that managementbelieves would have a material adverse impact on its financial position,results of operations, or cash flows.

 

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**Item 6.****           Exhibitsand Reports on Form 8-K**

 
| (a)                                                                                                                                         |   | Exhibits                                                                                                          |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                        |   |                                                                                                              |
|                                                                                                                                        |   | 31.1                                                                                                              | Certificate of Chief Executive Officer under Section 302 of the  Sarbanes-Oxley Act of 2002. |
|                                                                                                                                        |   |                                                                                                              |   |
|                                                                                                                                        |   | 31.2                                                                                                              | Certificate of Chief Financial Officer under Section 302 of the  Sarbanes-Oxley Act of 2002. |
|                                                                                                                                        |   |                                                                                                              |   |
|                                                                                                                                        |   | 32.1                                                                                                              | Certification of Chief Executive Officer  under 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 |
|                                                                                                                                        |   |                                                                                                              |   |
|                                                                                                                                        |   | 32.2                                                                                                              | Certification of Chief Financial Officer  under 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |
|                                                                                                                                        |   |                                                                                                              |
| (b)                                                                                                                                         |   | Reports on Form 8-K                                                                                               |
|                                                                                                                                        |   |                                                                                                              |
| During the quarter ended July 31, 2003, Unify filed the following  Current Reports on form 8-K with the Securities and Exchange Commission: |
|                                                                                                                                        |   |                                                                                                              |
|                                                                                                                                        |   | Form 8-K filed on June 17, 2003 containing Unify’s fiscal year ended  April 30, 2003 earnings press release. |

 

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**UNIFYCORPORATION**

**SIGNATURE**

 

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has caused this report to besigned on its behalf by the undersigned thereunto duly authorized.

 

 
| Date:  September 9, 2003 | Unify  Corporation                            |
|--------------------------|-----------------------------------------------|
|                     | *(Registrant)*                                |
|                     |                                          |
|                     | By:                                           |
|                     |                                          |
|                     | /s/ PETER J.  DICORTI                         |
|                     | Peter J. DiCorti                              |
|                     | Chief  Financial Officer                      |
|                     | (Principal  Financial and Accounting Officer) |
|                          |                                               |  |

 

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